Motley Fool Australia

Forget the Paradise Papers: These shares have record low effective tax rates


Tax has been a subject of huge debate in recent times, and so it should be. Whilst taxes can be used by governments to spend on public programs that benefit the general population, there is no doubt that taxes also have an impact on investment returns.

That’s why it comes as no surprise that at times US listed stocks have traded higher on news that US president Donald Trump promised big tax cuts.

Even Australian listed stocks such as CSL Limited (ASX: CSL)Cochlear Limited (ASX: COH) and Westfield Corp Ltd (ASX: WFD) could benefit from the Trump trade.

Whilst Australia’s corporate tax rate is currently 30%, there are some companies with a lower effective tax rate:

  • Crown Resorts Ltd (ASX: CWN) had an effective tax rate of 5.5% in FY 2017. This was mainly due to “non-assessable significant items” that are included in its profit figure but cannot be included for income tax purposes.
  • Alumina Limited (ASX: AWC) had an effective tax rate of 0% in both FY 2016 and FY 2015 which was mainly due to their share of equity accounted profits in Alcoa World Alumina and Chemicals (AWAC) which are not assessable for tax purposes.
  • Stapled securities and infrastructure trusts such as Transurban Group (ASX: TCL), Scentre Group (ASX: SCG), Sydney Airport Holdings Pty Ltd (ASX: SYD) and Goodman Group (ASX: GMG) also have effective tax rates which are lower than 10%. This is because stapled securities utilise the ‘flow-through’ nature of trusts for tax purposes. Under this principle, as long as the trust generates most of its income from ‘passive’ sources and also distributes most of its taxable income each year, the income is taxed in the hands of unitholders and not at the trust level.

Foolish takeaway

Whilst tax is obviously a big consideration prior to making an investment, it should not be the sole or main driver of an investment decision. As always, the underlying fundamentals of expected cash flows to be produced should determine whether you invest or not. If it’s dividends that you are after, try this top dividend stock.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can follow Kevin on Twitter @KevinGandiya

The Motley Fool Australia owns shares of Crown Resorts Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Related Articles…

Latest posts by Kevin Gandiya (see all)